Thanks to smart contracts, the non-fungible token (NFTs) and decentralised finance (DeFi) segments of the crypto economy came into existence. Ethereum enjoyed wide use as the first blockchain with full-fledged smart contract support. However, as smart contract adoption and integration grew, the burden on the network rose to critical levels. This led to a record rise in commission market-wide.
Ethereum is based on a proof-of-work protocol, where miners are responsible for a cluster of transactions in the block. It takes an average of 13 seconds to insert a new block into the network. Since each block contains 100-200 transactions, this equates to around 12 transactions per second, which doesn't meet current user needs.
The slow network speed and high commissions led to the emergence of competitors who ditched the clunky proof-of-work model for a proof-of-stake protocol. For example, the Terra blockchain processes over 1,000 transactions per second with a commission of 0.1 to 1.0 SDR (1 SDR = $1.40). This year, Terra stormed to second place in the DeFi market in terms of the volume of stacked funds, acquiring a 10% market share. Meanwhile, Ethereum continues to lose ground and will soon account for less than 50% of the market.
Ethereum's loss of standing is reflected in the cryptocurrency's value. As such, the LUNA coin from the Terra blockchain has already recovered from its winter correction and is preparing to test its all-time high, while Ethereum's recovery is lagging behind even Bitcoin.
Ethereum remains the only decentralised network with smart-contract support, but its market share is gradually being chipped away by faster blockchains. The transition to proof-of-stake could steady the ship for Ethereum as its two network branches (ETH and ETH 2.0) merge, with this move planned for Q2 2022. However, this development seems to be delayed every year, which is prompting new projects to turn their back on Ethereum as a base blockchain.
StormGain analytical group
(cryptocurrency trading, exchange and storage platform)
